A New Age Industrial Product Emerging to Meet Modern Needs

Inspired by the creative office movement, a new generation of industrial flex space is emerging that combines creative office and industrial uses under one roof. Most of these projects recycle large old industrial buildings by dividing them up for multiple tenants.

This is a relatively new product type that appears most popular in mature urban locations with a large, educated young workforce, such as San Diego, Minneapolis, Seattle, Minneapolis, Los Angeles and New York, according to James Breeze, national director of industrial research with real estate services firm Colliers International. “But I do expect the concept of ‘creative industrial’ to spread to more urban markets in the coming years, especially those with active, younger populations that attract the types of tenants that service this population base,” Breeze notes.

This type of space is attractive to biopharma companies, suppliers of outdoor sporting equipment and online food or clothing manufacturers and distributors, adds Breeze. “We could also see some demand from large e-commerce retailers as a ‘last-mile’ distribution or pick-up location.”

Industrial developers face stiff competition from creative office, retail and residential lofts uses for old warehouse buildings located within the urban core, he notes. The best opportunities for redeveloping older warehouses to creative industrial use exist in urban locations on the perimeter of core markets.

For example, Hamilton, NJ-based Modern Recycled Spaces buys falling-down, historic factory buildings with great character in declining neighborhoods, because they provide the right stuff for these types of conversions and can be had at a price point that keeps rents low, notes Max Popkin, director of leasing and marketing with the company. The firm’s 220,000-sq.-ft. Studio Park is an abandoned bottling facility in a gritty neighborhood of Hamilton, N.J., which happens to be near Princeton.

Modern Recycled Spaced transformed the building into an edgy, contemporary workspace, with a variety of shared amenities, including a gym, kitchen and café, indoor and outdoor spaces for socializing, ping-pong tables and conference rooms. Popkin notes that similar to co-working spaces, these buildings accommodate the needs of start-ups, allowing them to expand their space as the business grows.

Popkin cites BAI, a long-term tenant that produces healthy, fruit-flavored beverages, as an example. A start-up eight years ago, BAI occupied a 1,000-sq.-ft. space at Studio Park, expanding as its business grew. Now, after the company sold for $1.7 billion, BAI’s headquarters occupies 30,000 sq. ft., and the company’s distribution needs have outgrown space availability at Studio Park, so this function moved to space in a facility nearby.

Meanwhile, Read Goode, a principal in the Richmond, Va. office of property management and leasing firm Divaris Real Estate Inc., helped his client reincarnate a 1946 Binswanger Glass factory in the city as a multi-tenant project. Located in Richmond’s hip, historic Scott’s Landing district, the three-story, 87,000-sq.-ft. art deco building now houses multiple uses.

The project is surrounded by retail amenities and Vasen Brewing Co. and Urban Farmhouse Restaurant & Café are tenants. As a result, Goode notes that that there are both on-site and off-site amenities. The building also has two outdoor social spaces and a rooftop deck, and the basement boiler room has been repositioned as a social gathering space with a speakeasy feel. Other occupants at the property include the corporate headquarters and manufacturing facility of Evatran Group, a start-up that manufactures charging stations for electric cars; 510 Architects; Fahrenheit Group, a consulting firm; and Handcraft Cleaners.

Encinitas, Calif.-based developer RAF Pacifica Group is unique among creative industrial developers, as it may be the only developer nationally doing ground-up, creative industrial. Noting that no new industrial space has been built in the San Diego region in a decade, Principal Adam Robinson says that the creative office movement inspired him to create a new product type that supports all aspects of a company’s business by integrating creative office and a corporate aesthetic with efficient industrial suites.

“We just rebranded what has been around for a long time and made it better,” he says, adding that many smaller company headquarters had occupied flex space in the past, but moved their offices out of aging facilities to buildings with a nicer work environment.

Robinson has six projects in the works in Carlsbad, an innovation hub Google has dubbed “the digital capital of the world.” There are 242 tech-oriented companies in Carlsbad that employ about 10,000 people. Tech companies are migrating to Carlsbad because the cost of living is lower than in the Bay Area and offers a similar tech start-up synergy and a desirable, coastal lifestyle.

The first project out of the ground is el•e•vate, a 156,977-sq.-ft. facility scheduled for completion in the next few weeks. Next up is a 277,387-sq.-ft. project called dis•tri•bute, which will break ground in April. These projects are designed with long narrow floor plates to accommodate windows all around for natural light. The buildings also feature skylights and floor-to-ceiling glass entries, as well as best-in class loading, warehousing design and clear heights.

Robinson is a spec builder, but has already pre-leased 50 percent of el•e•vate and is in negotiations for another 40 percent of the building. This product type is more expensive to build and commands higher rents than traditional industrial space, but being the only ground-up development of this type, Robinson notes that initially it was difficult to demonstrate the project’s value because there was nothing comparable. When completed, el•e•vate will provide a showcase to assist in pre-leasing efforts, says.